Menendez, Warren, Blumenthal Demand Answers from Betsy DeVos on College Aid Debit Card that Would Allow Government to Monitor Student Spending, Give Corporations Exclusive Marketing Access to Potentially Millions of FSA Borrowers

Menendez, Warren, Blumenthal Demand Answers from Betsy DeVos on College Aid Debit Card that Would Allow Government to Monitor Student Spending, Give Corporations Exclusive Marketing Access to Potentially Millions of FSA Borrowers

 

WASHINGTON, D.C. – U.S. Senator Bob Menendez (D-N.J.), a senior member of the Senate Banking Committee, today led a letter, cosigned by Elizabeth Warren (D-Mass.), a senior member of the Health, Education, Labor, and Pensions (H.E.L.P.) Committee, and Richard Blumenthal (D-Conn.), demanding answers from Education Secretary Betsy DeVos regarding the lack of safeguards in its campus card pilot program to ensure the protection of students’ spending data from government manipulation and exploitation by financial institutions. 

“[W]e are alarmed by the message the card sends to students that their spending habits are going to be monitored by the federal government, that the Department is essentially selling its services to corporate partners, and that the Department will have unprecedented access to student spending data under this program,” the Senators wrote, noting further that the Trump Administration “has shown an unwillingness to protect students and student borrowers, from rolling back protections for students who are victims of fraud and abuse at the hands of predatory colleges, to undermining the ability of states to protect their residents from substandard student loan servicing failures.” 

Last fall, the Department of Education announced it intended to launch a campus debit card program that would offer all Federal Student Aid (FSA) recipients at participating schools a debit card co-branded by FSA and a soon-to-be-chosen private financial institution. 

With student debt at an all-time high, the Senators warned that Secretary DeVos’ proposed card would present students with a Faustian bargain: zero fees in exchange for full access to their spending habits, which could later be used to manipulate and/or restrict federal financial aid, and giving a private corporation exclusive, lifetime marketing access to borrowers.

“We are concerned the Department will abuse these students spending reports in an attempt to restrict or criticize what qualifies as an educational expense under the Higher Education Act,” the senators wrote.  “It has long been a goal for some special interest groups to attack the recipients of federal aid to low-income individuals, including similar efforts in a variety of means-tested benefits programs.  Students are already struggling with college expenses, and the last thing they need is additional government intrusion into their effort to survive.”   

Full text of the letter is below and can be downloaded here:

March 8, 2018

The Honorable Betsy DeVos

Secretary of Education

U.S. Department of Education

400 Maryland Avenue, S.W.

Washington, D.C. 20202

Re: Docket ID number ED-2018-ICCD-0134

Dear Secretary DeVos:

We write to express strong concerns regarding the U.S. Department of Education’s (“Department”) Payment Vehicle Account Program Pilot.

While we appreciate that the Department is pursuing a financial product with lower fees for student aid recipients, we are alarmed by the message the card sends to students that their spending habits are going to be monitored by the federal government, that the Department is essentially selling its services to corporate partners, and that the Department will have unprecedented access to student spending data under this program.  As you move forward with the new pilot program, we request the Department ensure students have access to safe and affordable financial products by securing stronger consumer protections for students and safeguarding their privacy and data.

Thus far, the Trump Administration has shown an unwillingness to protect students and student borrowers, from rolling back protections for students who are victims of fraud and abuse at the hands of predatory colleges, to undermining the ability of states to protect their residents from substandard student loan servicing failures.  Given the Administration’s clear record of prioritizing the interests of financial institutions over the needs of our nation’s students, we have concerns regarding the Department’s proposed debit card program.

Endorsing a financial institution

The Department has recognized that federal student loans are often the first financial services product that students encounter and that a partnering financial institution for this debit card will have a “meaningful way to build a stronger, lifetime relationship with FSA’s customers,” through their collaboration with the government.[1]  The Department also acknowledged that by co-branding the card it is, “transferring a thing of value,” to a financial institution.[2]  Given that the Department recognizes the significance of its proposal, it must more aggressively ensure that it is in the best interest of students.

We are troubled that under this “transaction,” the Department is offering up not only its implicit endorsement of the financial institution, but also marketing access to potentially millions of students.[3]  Students should not be directed toward a financial product by the government; instead, the government should be protecting students, not selling a relationship to financial institutions.  It is essential that the Department not allow financial services companies to continue using the debit card issued to students longer than six months following their most recent enrollment at the same institution of higher education, to ensure that the federal government is not giving corporate entities lifetime access to financial aid recipients.

Protecting student data

Additionally, we are alarmed that the Department will collect data on student spending through its pilot—even in aggregate form.  The Department’s purported purpose for collecting aggregate student spending information is to monitor for “compliance.”  However, it is unclear what problem the Department is trying to solve, or what type of compliance it can monitor with such data.  It has long been a goal for some special interest groups to attack the recipients of federal aid to low-income individuals, including similar efforts in a variety of means-tested benefits programs.  Students are already struggling with college expenses, and the last thing they need is additional government intrusion into their effort to survive.  It is inappropriate for the Department to collect merchant category codes on student spending behavior, and the Department should not request, collect, or analyze such information.  The pilot program’s forms and guidelines must contain these clear prohibitions.

While we appreciate the Department has expressed a desire to reduce fees paid by students on campus financial products, it can easily do so through better enforcement of the cash management regulations—and no such comparative analysis has been presented.  Recent reports have indicated that students continue to be charged high fees, but the Department has done little in its power to stop this.[4]  The Department has not aggressively cracked down on arrangements that are resulting in abnormally high fees to students.  Instead of creating a massive new government program with significant risks for students, the Department must demonstrate that it has pursued alternative enforcement options.

Furthermore, the proposed debit card does not ensure that the companies collaborating with federal government will offer our nation’s students a safe financial product that operates in their best interest.  To safeguard students’ privacy and financial choices, we request the Department address the following questions.

1)         How is the Department currently selecting institutions or financial arrangements in its effort to enforce the cash management regulations?

2)         How is the Department working with the CFPB to enforce the cash management regulations?

3)         Has the Department requested the CFPB produce public annual reports on campus card account fees?  If not, why not?

4)         What problems has the Department identified in current disbursement practices that necessitate the development of the Payment Vehicle Account Program Pilot?

5)         Which specific consumer protection laws does the Department believe apply to the Payment Vehicle Account Program Pilot?

6)         What information is the Department looking to learn from receiving aggregate reports on student spending behaviors?

7)         What level of detail will be reported in the aggregate data received by the Department?

8)         Will the aggregate reports on student spending be shared outside of the Department?  If so, with whom will the Department share these reports?

9)         How will the Department ensure that no conflicts of interest are present in the agreements made under the Payment Vehicle Account Program Pilot?

10)      How will the Department ensure that no data sharing will occur between the vendors for the Payment Vehicle Account and student loan servicers and other FSA contractors?

11)      What restrictions will be placed on the financial institution(s) participating in the Payment Vehicle Account Program Pilot in regards to charging students fees after they leave school?

12)      What disclaimers will the Department provide to ensure that no implied endorsement of a financial partner’s other products, services, or practices is conveyed by the pilot?

13)      How will the Department ensure that privacy of pilot participants will be protected within the MyStudentAid app or any other electronic payment platform, including ensuring that student location information will not be tracked?

Thank you for your attention to this matter. Please provide a response no later than March 27, 2019.

Sincerely,  

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